Thursday, November 01, 2012

[New York] has the worst “wealth to flood protection” ratio in the world. Studies by the OECD [Organization for Economic Cooperation and Development] analyzed 136 coastal cities around the world with at least 1 million inhabitants. . . . Greater New York was #2 in terms of assets exposed to coastal flooding, only behind Miami. And more ominously, Amsterdam and Rotterdam are protected to a flood standard of the most severe storm every 10,000 years; Tokyo, Shanghai and London are protected to a 1,000 year standard; Osaka to a 300 year standard; and New York only to a standard of 100 years. If the UK is any example, it takes time to change: the Thames Barrier was 30 years in the making.

While electricity outages in metropolitan areas are mostly a function of coastal flooding, millions of suburban and rural customers are without power due to downed electrical wires. This has always struck me as a 19th-century kind of problem. These instances would be dramatically reduced if power lines and transformers were buried underground. However, the costs of underground electricity distribution systems can be 4-6 times higher than overhead wires. Can these costs be justified by the associated benefits: reduced repair costs after storms, fewer car accidents involving utility poles, reduced tree trimming costs and lower electricity line losses? Not really; in 2005, Virginia estimated the benefits of burying power lines and transformers as being only 40% of the $10 billion cost. Only if you are willing to assume large increases in property values can the numbers be made to work. Most US states that have looked at this have come to similar conclusions.

-from the October 31, 2012 issue of Eye on the Market, published by JP Morgan and written by Michael Cembalest.